Greene v. Farmers Ins. Exch., 2014 Tex. LEXIS 757 (Tex. Aug. 29, 2014, Boyd and Willett JJ. concurring).
LaWayne Greene insured her residence under a state-approved Texas Homeowners-A Policy (form “HOA”) that contained a standard “vacancy clause,” providing that coverage will be suspended effective 60 days after the dwelling becomes vacant. During the policy period, the insured moved into a retirement community and notified Farmers of her intent to sell the property. More than 60 days after moving, but still during the policy period, a neighbor’s house caught fire, damaging the insured’s house. Farmers denied coverage, and this action ensued. The Texas Supreme Court affirmed the decision of the court of appeals, holding that the policy does not cover a dwelling vacant for more than 60 days.
But more important than this decision is the lengthy jeremiad launched by two concurring justices, arguing that the Texas High Court has departed from established condition-precedent doctrine by requiring insurers to prove prejudice for some conditions but not others. Over the last 30 years, argues Justice Boyd, the Court issued five decisions that arguably change the hard-and-fast rule of contract law that failure to meet a condition precedent voids coverage:
Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936, 937 (Tex. 1984) (requiring as a matter of public policy that insurer show that lack of airworthiness certificate, a condition of coverage, contributed to the accident);
Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691, 694 (Tex. 1994) (insured’s breach of consent-to-settle condition in UM portion of auto policy must be material);
PAJ, Inc. v. Hanover Ins. Co., 243 S.W.3d 630, 636-37 (Tex. 2008) (untimely notice under CGL policy does not permit denial of coverage absent proof of prejudice);
Prodigy Commc’ns Corp. v. Agricultural Excess & Surplus Ins. Co., 288 S.W.3d 374, 382 (Tex. 2009) (untimely notice within policy period under claims-made policy does not justify denial of coverage absent proof of prejudice);
Lennar Corp. v. Markel Am. Ins. Co., 413 S.W.3d 750, 755 (Tex. 2013) (insured’s breach of consent-to-settle condition in CGL policy must be material to justify denial).
The majority holds that the present case is distinguishable from these five precedents. Justices Boyd and Willett counter that these cases are indistinguishable and urge adoption of a middle ground between stare decisis and the earlier “certainty” of contract principles by confining these precedents strictly to their facts. Justice Boyd stated:
While illogical certainty is admittedly undesirable, it is at least better than the illogical uncertainty that will result from the Court's decision in this case.
The majority holds that the vacancy clause did not require proof of prejudice because, unlike in Hernandez, PAJ, Prodigy, and Lennar, the insured did not breach a condition precedent when she vacated the premises. Instead, the scope of coverage simply does not encompass a vacated dwelling beyond the 60-day extension of coverage afforded by the vacancy clause. In other words, reasoned the Court, the vacancy clause is not a condition limiting coverage; it actually expands coverage. The policy covered only an occupied dwelling, but the clause afforded an extra grace period of 60 days.
In Hernandez and Lennar, reasons the majority, the insured breached consent-to-settle provisions. Applying general contract-law principles in those cases, the Court holds that the breaches were not material without some showing of actual prejudice to the insurer. PAJ and Prodigy involved notification requirements that had been breached, yet without prejudice to the insurers’ defense duties.
In all four cases we concluded either that the insurers received the benefit they expected from the contracts, or that the policy terms at issue were not a part of the bargained-for exchanges between insurers and insureds.
Moreover, unlike in Puckett, the Court finds here that there is no public-policy reason for requiring that the vacancy cause the loss, primarily because the HOA form was approved by the Texas Department of Insurance, to which the Legislature had expressly delegated authority to make decisions about provisions in that form. In other words, it is up to the Legislature to make public-policy decisions regarding the HOA form. Therefore, the Court affirms the holding of the court of appeals.
The concurring opinion ends with an appeal to the Legislature to make a public-policy determination and expand statutory protections against conditions precedent absent proof of prejudice, if that body chooses to follow the reasoning and policy expressed in the High Court’s earlier decisions. We shall see.
David S. White